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Series LLCs in Business and Tax Planning

By Glenn Walberg, J.D., LL.M. and Randall K. Hanson, J.D., LL.M.

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EXECUTIVE SUMMARY

Statutes in
eight states allow the creation of series LLCs, which consist of
a “master” LLC and one or more series of members, managers,
interests, or assets. Each series can generally function as the
equivalent to a freestanding legal entity separate from the
master LLC and any other series. This allows for the segregation
of assets and business functions for liability purposes without
the need to form multiple separate entities.

Little guidance is currently available on the
treatment of series LLCs. Significant uncertainties about series
LLCs include whether other states will recognize them for
liability purposes, how they will be treated in bankruptcy, and
how they will be treated for federal and state tax purposes.

The IRS has in previous guidance embraced the
concept of separate entity treatment in the context of series
structures, including a letter ruling where it approved this
treatment for a proposed series LLC.

The use of series LLCs is likely to increase as more guidance
on their treatment is released, and practitioners should
therefore become familiar with these entities and when their use
may be appropriate.

With the advent of series limited
liability companies (LLCs), businesses face more options and
complexity in making choice-of-entity decisions. Eight states
currently authorize series structures for LLCs;1 however, series LLCs have been
used infrequently due largely to uncertainty about what protection
they provide against liabilities and how they are treated for tax
purposes. Despite these present uncertainties, series LLCs hold
promise as favorable entities for business and tax planning.

Guidance about the classification of
series LLCs is on the IRS’s business plan. If such guidance reduces
uncertainty about their tax treatment, more states might adopt
series LLC legislation and correspondingly reduce uncertainty about
their liability protection. Therefore, practitioners should
familiarize themselves with current planning opportunities and
issues related to series LLCs in anticipation of heightened interest
by clients as the federal and state governments explore these
entities.

Series LLCs

A series LLC is a “master” LLC
with one or more series of members, managers, interests, or assets.
Although contained within the master LLC, each series can have
separate rights, powers, and duties with respect to specific
property and liabilities and can have separate business purposes and
investment objectives. The series may also have common members with
identical ownership interests, common members with varying
interests, or different members with unrelated interests— one series
could even own an interest in another series. Accordingly, it is
possible for each series to function as the equivalent to a
freestanding legal entity such that a series, depending on state
law, could contract, own property, and sue or be sued in its own
name. For example, a retail furniture store that offers customer
financing could place the retail operations in one series and the
financing operations in another series within a single master LLC.
The retail operations series and the financing operations series
could then each have separately identifiable owners, managers,
assets, liabilities, and business purposes.

The eight states
with series LLC legislation envisioned that, with properly
established and maintained series, creditors could enforce the
liabilities of one series only against the assets of that series.
The assets of the master LLC and any other series would remain
outside the reach of such creditors. A series structure thus helps
wall off assets and liabilities within a master LLC. In the context
of the example above, a series structure could prevent a furniture
manufacturer, which might seek payment for goods delivered to the
retail operation series, from enforcing a retailrelated liability
against the assets of either the master LLC generally or the
financing operation series specifically.

The use of series
within a single LLC offers commonly perceived advantages over the
well-established practice of forming multiple legal entities to
segregate assets and liabilities. First, depending on a state’s
filing fees, the costs to organize and maintain a series LLC are
often less than comparable costs for multiple entities. Second, a
series LLC might require fewer unique organizational documents than
multiple entities, particularly where the series have common members
with identical interests. Finally, an LLC might find it easier and
quicker to add a new series than to organize an entirely new entity.
These economies of scale advantages might encourage the placement of
real estate parcels, for example, in series of an LLC rather than in
separate legal entities, such as multiple LLCs under an LLC holding
company.

Liability Concerns

Despite those potential
advantages, many advisers hesitate to recommend series LLCs due to
their uncertain ability to contain liabilities within a series. An
LLC generally provides a good external shield between the LLC and
its members. Like a corporation, an LLC provides inside-out asset
protection insofar as a creditor of the LLC (inside) generally
cannot seek satisfaction of a liability from the members (outside).
Unlike a corporation, an LLC also provides outside-in asset
protection such that restrictions on the transferability of LLC
interests generally limit creditors of members to taking an economic
interest in distributions from an LLC. With a mere economic
interest, a creditor cannot force distributions from an LLC, so the
assets of the LLC (inside) remain protected from the liabilities of
its members (outside). Because states authorized series LLCs by
amending their existing LLC statutes, a series LLC and its members
should similarly enjoy the benefits of an external shield relative
to that series.

Greater uncertainty surrounds a series LLC’s
ability to construct internal shields between series or between a
series and its master LLC. As noted above, the series LLC
legislation intended to restrict the reach of creditors of one
series to assets of that series. Regardless of that intention,
courts might refuse to respect the internal shields and permit
creditors to recover from assets of any series or the master LLC.
This prospect of ineffective internal shields makes advisers wary of
series LLCs.

Respect for Internal
Shields

Courts in states with series LLC legislation
presumably will respect internal shields. Given that the
legislatures in Delaware, Illinois, Iowa, Nevada, Oklahoma,
Tennessee, Texas, and Utah prescribed internal shields,2 courts in those states generally
should respect them. Such courts might nevertheless be amenable to
(1) disregarding the shields for improperly formed series and series
unable to account for their assets or (2) piercing internal shields
where necessary to achieve justice, such as for inadequately
capitalized series. Accordingly, the formation and maintenance of a
series structure requires an exercise of reasonable diligence.
Unfortunately, many business owners attribute informality to LLCs
and are unaccustomed to maintaining documentation, such as records
to substantiate the assets attributable to a particular series.
These owners and their advisers must recognize that adherence to
series LLCs formalities—akin to the demands placed on
corporations—is necessary to achieve protection from internal
shields in any state.

For many advisers, a more significant
question exists about whether courts in other states will respect
the internal shields of series LLCs. A series LLC organized in one
of the states with series LLC legislation could foreseeably face
claims of creditors in other jurisdictions. For example, a series
LLC duly organized in Delaware could face a personal injury lawsuit
from the activities of a series in North Carolina. Whether a North
Carolina court would respect the internal shields established by
Delaware law raises an unresolved choiceof- law question, which
could affect an adviser’s choice-of-entity recommendation.

The Internal Affairs
Doctrine

A determination of applicable law will likely reflect
the internal affairs doctrine, which developed to resolve state law
conflicts relative to corporations. The doctrine basically states
that the laws of an entity’s state of organization will govern the
entity’s internal affairs.3 In a
corporate context, the doctrine has been understood to govern
relationships between management and shareholders as well as to
establish a shareholder’s limited liability for a corporation’s
debts. The doctrine seems well justified for disputes between
management and shareholders, given that they voluntarily consented
to the relationship under the laws of the state of organization. The
doctrine seems more questionable for third-party claims against
shareholders due to the often involuntary nature of such claims, yet
the doctrine’s application remains firmly established in the
corporate context under case and statutory law.

States have codified aspects of the
internal affairs doctrine in their LLC statutes. North Carolina
statutes (like other state statutes) provide that in the example
above, the laws of Delaware would govern the internal affairs of the
series LLC and the liability of its managers and members.4 At first glance, it might appear
that a North Carolina court would uphold the internal shields of the
series LLC as a permissible structure governing liability. However,
North Carolina (like other states) limits its application of the
internal affairs doctrine such that the statute would afford the
Delaware series LLC no greater rights or privileges than, and would
subject the Delaware series LLC to, the same liabilities imposed on
a North Carolina LLC.5

This limitation makes advisers wary about the viability of
internal shields against third-party claimants. In particular, it
seems reasonable to expect that a North Carolina court would reject
internal shields as assertions of rights or privileges or
limitations on liability beyond those authorized for North Carolina
LLCs rather than accept the series as mere devices to manage
internal affairs under Delaware law. Although no court in North
Carolina or any other state has resolved this issue, advisers appear
reluctant to rely on a series structure as protection against
plaintiff claims outside the eight states with series LLC
legislation. As more states authorize series LLCs, however, these
concerns about out-of-state claims should diminish insofar as courts
equate the internal shields of foreign and domestic series LLCs.

Bankruptcy
Considerations

Regardless of whether state courts respect
internal shields,6 advisers
cautiously wonder how U.S. bankruptcy courts will treat series LLCs.
Bankruptcy laws generally consider any person as an eligible
debtor7 that can voluntarily
or involuntarily enter into bankruptcy. A “person,” for this
purpose, is defined to include an individual, partnership, or
corporation.8 Bankruptcy
courts have accepted that this nonlimiting definition of “included”
examples9 permits LLCs to
qualify as persons and correspondingly as debtors.10 But the courts have yet to
consider whether a single series qualifies as a person such that it
could enter into bankruptcy independently of other series and the
master LLC. Thus, the potential for a series to undertake separate
proceedings and correspondingly for internal shields to insulate the
liabilities of that series from other assets remains unclear in a
bankruptcy context.

Whether a series qualifies as a
person for bankruptcy purposes might depend on its status as a
separate entity under state law. A bankruptcy court sits as a court
of equity, which means it fashions remedies to achieve justice and
fairness without being constrained by the form of a transaction.
State law characterizations therefore will not bind a bankruptcy
court. Nevertheless, any equitable motivation for treating a series
as a person seems strongest where the state of organization treats
the series as an entity separate from the master LLC and other
series. Presently, only Illinois makes separate entity status
available for each series of an LLC.11 Series LLCs organized in other
states thus risk that, under an objective to enlarge a bankruptcy
estate, a court might be unwilling to recognize each series of an
LLC as a separate person where the LLC’s state of organization has
failed to do so. Consequently, a mere ability of a series to
function as the equivalent to a legal entity (e.g., contracting,
owning property, and suing/being sued in one’s own name) might prove
insufficient to overcome a court’s equitable notion that it should
include all the assets of an LLC and its series in a bankruptcy
estate. But advisers should remain aware that a bankruptcy court
could similarly disregard the separate entity status under Illinois
law and ignore an internal shield in its proceedings under the
pretext of equity.

Even if a bankruptcy court treats
each series as a person, the court could invoke an equitable remedy
known as substantive consolidation. That remedy involves treating a
bankruptcy estate as composed of the assets of two or more
persons—including, in some instances, the assets of debtors and
nondebtors. So the assets of a master LLC and/or some or all of its
series could comprise a single estate subject to their collective
creditors as a result of a substantive consolidation. No uniform
standard exists for invoking this remedy, but it is generally
considered appropriate where creditors or owners have disregarded
the separate identities of persons or where those persons have
entangled financial affairs.12
Although substantive consolidation is not a unique risk of series
LLCs (courts have also applied the remedy to parent and subsidiary
corporations), future decisions might reveal whether bankruptcy
courts are more inclined to apply the remedy to series LLC
structures.

Practice tip: Accordingly, advisers should emphasize
compliance with series LLCs formalities, including recordkeeping for
assets attributable to a particular series, to minimize the risk of
a substantive consolidation.

Weighing the Costs
and Benefits

Advisers thus express legitimate concerns about
using internal shields to protect assets in series LLCs.
Interestingly, those concerns echo sentiments expressed about LLCs
generally in the early 1990s13
and should similarly dissipate as more states enact series LLC
legislation and bankruptcy courts continue to address LLC and series
LLC issues. Accordingly, advisers striving for bulletproof asset
protection structures or bankruptcy remote vehicles will justifiably
reject series LLCs in favor of more familiar separate-entity
holdings, such as multi-tiered corporate structures.14

Other advisers will likely
gradually adopt series LLCs in the same manner as they had for LLCs:
weighing the costs and risks of a series structure—in lieu of
holding separate entities—in light of the jurisdictions in which a
series LLC would operate and the emerging legal considerations for
these variations of an otherwise acceptable LLC entity. Advisers
thus must recognize that current uncertainties make series LLCs
risky replacements for trusted separate-entity structures in
choice-of-entity planning.

However, an adviser should
consider using a series LLC as a replacement for an LLC in some
current planning. Because series LLCs resulted from amendments to
existing LLC statutes, a series LLC should provide the same
inside-out and outsidein asset protection as any LLC. But a series
LLC offers the potential of additional protection through internal
shields, which an LLC cannot match. A choice must be made between
the uncertain protection of internal shields in a series LLC and the
certain lack of comparable protection of an LLC. An adviser should
therefore carefully consider whether any recommendation to organize
an LLC best serves a client’s interests where the client could have
used a series LLC instead. Various factors, such as higher
compliance costs or a client’s inability to maintain sufficient
records, might make a series LLC infeasible; however, advisers
cannot ignore series LLCs in business planning.

Advisers
should increasingly rely on series LLCs in small business planning.
Although the internal shields might not succeed, small businesses
would face little downside risk because they generally cannot resort
to separate-entity structures that are too costly or
administratively burdensome. Thus, series LLCs provide a
better-than-nothing opportunity to shield certain assets from claims
of creditors. So, for example, an adviser making a recommendation
for a business headquartered in Gary, Indiana, with significant
activities in Chicago might consider organizing a series LLC in
Illinois and placing particular operations in each series rather
than merely organizing an LLC in Indiana and subjecting all the
assets to the claims of creditors. The former structure would at
least provide some protection against claims arising in Illinois at
potentially a fraction of the cost and burden of a separate-entity
structure.

Tax Concerns

Other
concerns about series LLCs originate from their uncertain tax
classifications. In particular, uncertainty exists about what
significance, if any, a series structure has in identifying relevant
business entities under the classification regulations of Sec. 7701.
The check-the-box regulations allow a business entity, other than a
per se corporation, to elect its federal tax classification.
Accordingly, a multi-member business entity can choose treatment as
a corporation or partnership, and a singlemember business entity can
choose treatment as a corporation or disregarded entity.15 A series—which can have its own
members, assets, liabilities, and business purpose—within a master
LLC brings into question whether the master LLC, the series, or both
constitute business entities that can elect tax classifications.

The regulations broadly define a
business entity for classification purposes. They consider any
entity recognized for federal tax purposes, other than a trust or
specially treated entity, as a business entity. 16 Moreover, they clarify that the
existence of such an entity does not depend on achieving entity
status under state law and that the entity could result from a
contractual arrangement to carry on a trade, business, financial
operation, or venture and to divide any resulting profits.17 The regulations, however, note
that mere coownership of property is insufficient to warrant a
finding of an entity separate from its owners even for leased or
rented property.18 Under this
broad definition, several alternative conclusions appear supportable
about what business entities exist for classification purposes
relative to the diverse relationships within a series LLC
structure.

Three alternative conclusions about classifications
for series LLCs seem noteworthy.

The tax system
might attribute no significance to a series structure such that it
would determine the tax classification for a master LLC without
regard to its series established under state law. This alternative
would treat the series LLC as the single business entity.

The tax system might deem each series to be a wholly owned
entity of an umbrella master LLC such that, absent any elections,
it would disregard the series as being separate from the master
LLC and classify the master LLC on the basis of its members and
elections. The second alternative thus would recognize multiple
business entities but would consider the master LLC as the sole
owner of each series.

The tax system might respect a
master LLC and each of its series as separate business entities,
recognize ownership as established by state law, and permit
independent determinations of their respective tax
classifications. The last alternative would let tax
classifications flow from the state law treatment of series LLCs.

IRS Rulings

Without definitively resolving how to classify series LLCs, the
IRS has ruled informally—consistent with the third alternative— that
each series determines its classification separately for federal tax
purposes. In Letter Ruling 200803004,19 the IRS considered the plan of
a single business trust, which was composed of portfolios treated as
separate regulated investment companies, to reorganize as a series
LLC whereby each portfolio would form a series in a master LLC.
Following the reorganization, each series would have its own assets,
liabilities, and earnings, its own investment objectives and
policies, and owners different than those of the other series. With
minimal discussion, the IRS effectively concluded that each series
constituted a business entity by holding that its classification as
a disregarded entity, partnership, or corporation depended on the
owners and elections of that series.

The IRS’s holding in the private
letter ruling was not surprising. A Tax Court decision20 and numerous rulings21 had previously found
separate-entity treatment appropriate in the context of series
structures. The IRS merely extended that treatment to a series LLC
in Letter Ruling 200803004, whereas it had previously been applied
in the context of series trusts. Unfortunately, neither the decision
nor the rulings provide enough analysis to fully justify such
treatment. One can only surmise that a sufficient degree of
separateness was found in the specific situations, most notably with
respect to regulated investment companies, to classify the various
series as separate taxable entities.22

Although the private
letter ruling informally embraces the concept that a series LLC can
consist of several taxable entities, questions persist about whether
such an approach to classification might vary in other situations.
For example, the separateness of a series, which might provide the
basis for separate-entity treatment for tax purposes, could diminish
with common ownership and business objectives. As an illustration,
assume two individuals organize a series LLC to conduct real estate
development for parcels owned by separate series. If each individual
owns 50% of the interests in each series, each series shares an
overriding business objective to develop real estate, and the only
meaningful difference between the series is the respective parcels
they develop, then it seems reasonable to ask whether the series
really amount to separate taxable entities despite their compliance
with any state law formalities.

Similar concerns could arise about
a series used solely to shield assets from creditors without
conducting additional activities. For example, a series that merely
holds property as a bankruptcy remote vehicle might not qualify as a
separate business entity, which could elect its tax classification.
Accordingly, despite issuing the letter ruling, the IRS continues to
study factors that could affect the classification of series LLCs.23 Prior to the issuance of any
formal guidance, advisers should not assume that a series within an
LLC will automatically qualify as a separate taxable entity.

Planning for the Future

Advisers can reasonably expect more states to enact series LLC
legislation if the IRS formally issues classification guidance. The
present uncertainty about the tax classification of series LLCs
arguably makes state legislatures hesitant to approve them.24 But if history provides any
insight about the future, it suggests a rapid enactment of series
legislation after the IRS resolves most classification issues. For
example, during an 11-year period, only two states enacted
multi-member LLC legislation before the IRS classified them as
partnerships in Rev. Rul. 88-76;25 thereafter, every state enacted
LLC legislation within 8 years. Only a few states had authorized a
single-member variation of an LLC before the check-the-box
regulations classified them as disregarded entities in 1997, but
every state authorized them within a few years afterward.26 If the IRS were to provide
similarly favorable classification guidance for series LLCs,
advisers could foresee more state legislation, which would
correspondingly reduce the uncertainty about the viability of
internal shields against out-of-state claims.

Even if states
enact no more series legislation, advisers should begin thinking
about the impact of series LLCs on tax planning. The likelihood of
having at least some series classified as separate taxable entities,
as evidenced by Letter Ruling 200803004, means taxpayers will face
new opportunities and challenges from operating businesses in LLCs.
Since the issuance of the check-the-box regulations, advisers have
become comfortable with single-member LLCs functioning as “tax
nothings”— legal entities disregarded for tax purposes. Series
within LLCs currently offer a potential for “tax somethings”— legal
constructs with limited state recognition that, if owned by multiple
members, are regarded as separate entities for tax purposes. These
tax somethings obviously could affect tax planning regardless of any
further state law developments.

Despite a presumption of additional
compliance burdens,27 the
relative ease of forming additional taxable entities through series
could provide an interesting dynamic in planning, particularly for
taxpayers with small businesses. A series structure could provide a
small business with a comparable option to the less feasible,
separate legal entity holding structure typically used by larger or
more sophisticated taxpayers. Thus, a series LLC might draw appeal
from its use for tax purposes—without concern about the strength of
its internal shields—where a taxpayer would otherwise willingly
operate a business in a single LLC to gain its inside-out and
outside-in protection despite its lack of internal protection.

A few examples can illustrate
potential tax advantages and disadvantages related to series LLCs.
First, an LLC could use a series, which is treated as a separate
taxable entity, to adopt particular methods of accounting. The LLC
might use this strategy if it cannot qualify for the desired method
as currently structured, if it seeks to avoid the administrative
cost and hassle of requesting consent to change an existing method,
or if it believes the IRS would deny such a request. Under this
strategy, the LLC could transfer business operations to a
nondisregarded series,28 and
that series then could select a method of its choice. An
accrual-method taxpayer, for example, would likely find transferring
a business to an intended cash-method series easier than securing
consent for an accrual-to-cash method change. The idea of
transferring businesses to take advantage of accounting methods has
generally been accepted in various holding structures,29 but the series LLC offers a
potentially less costly means to achieve that objective.

Second, a series LLC might avoid
the rigors or minimize the impact of the uniform capitalization
(UNICAP) rules. Those rules generally require the capitalization of
certain costs properly allocable to property produced or acquired
for resale by a taxpayer. In this regard, a taxpayer should recall a
requirement to capitalize an arm’slength charge for costs incurred
by a related person that are properly allocable to the taxpayer’s
property.30 Relatedness, for
this purpose, depends on whether the same interests own or control
directly or indirectly two or more organizations, trades, or
businesses.31 Because a
series structure permits members to own different interests in
series within one LLC, it appears possible to avoid common ownership
and for such series to remain unrelated persons under this broad
standard. Depending on business needs, an LLC could thereby isolate
costs or activities within series in a way that avoids or minimizes
an overall need to capitalize costs.

Third, an isolation of costs or
activities within particular series, which are not under common
control, could similarly increase any available deduction under Sec.
199. Because the deduction generally equals a percentage of a
taxpayer’s income attributable to U.S. production activities, a
series could help increase the gross receipts or decrease the costs
reflected in that income. For example, an LLC might find that its
U.S. manufacturing activity is too insignificant—relative to all the
activities associated with qualifying production property—to create
domestic production gross receipts.32 If the LLC placed only the
manufacturing activity in a series, the significance of the
manufacturing to that series might permit the recognition of
domestic production gross receipts from sales of manufactured
property to unrelated series within the master LLC. The use of a
series in that situation might also affect the items included in
costs of goods sold allocable to those gross receipts,33 including the application of
the UNICAP rules as described above, which would correspondingly
affect a determination of qualified production activities income. As
a separate taxpayer, the series would have its own gross receipts
and costs that would factor into any Sec. 199 computation.

Finally, in contrast to the
benefits described above, businesses conducted within series could
adversely affect allowable deductions. The existence of separate
taxable entities within a series LLC would preclude imputing the
business of one series to other series or to the master LLC.34 A series could therefore claim
a deduction for an ordinary and necessary business expense only
where it carries on the business to which the expense relates.35 For example, a series that
incurs investigatory costs, with respect to a business venture
identical to that already conducted by another series, might find
that the costs are not immediately deductible as expenses of
carrying on an existing business and instead are recoverable only in
a manner consistent with a deemed start-up election. Moreover,
unless a master LLC conducts its own business, it might lack any
basis to deduct purported business expenses. That situation could
arise where a master LLC does not own interests in its series and
therefore cannot claim that it incurred the costs in conducting a
holding company business.36
Accordingly, advisers should carefully consider what entity benefits
from costs in determining and substantiating deductibility, which
unfortunately adds another burden to the relatively more stringent
recordkeeping requirements under state law for maintaining a series
LLC.

Conclusion

Series LLCs present an attractive
variation of a now familiar limited liability entity. Despite
present uncertainty about the viability of internal shields against
potential claimants and their effect on tax classifications, series
LLCs will likely increase in popularity in the future, especially if
the government’s resolution of their tax classification hastens the
adoption of more series LLC legislation. In the meantime, advisers
should consider the opportunities and risks, particularly for small
businesses, of using series LLCs in lieu of nonseries LLCs in
business and tax planning.

EditorNotes

Glenn
Walberg is an assistant professor of accounting and Randall Hanson
is a professor of business law at the University of North
Carolina–Wilmington. For more information about this article,
contact Prof. Walberg at walbergg@uncw.edu.

Notes

1 Delaware, Illinois, Iowa, Nevada,
Oklahoma, Tennessee, Texas, and Utah. Minnesota, North Dakota, and
Wisconsin permit LLCs to designate series of interests, analogous to
issuing different classes of stock in a corporation. Unlike a series
LLC, such designations do not segregate assets and liabilities
within an LLC. In particular, series LLCs closely resemble
segregated portfolio companies and protected cell companies used by
the offshore mutual fund industry.

6 The SEC staff recently concluded that
the series LLC of a broker-dealer would not satisfy the SEC’s
financial responsibility rules where retail and institutional
activities would be placed in separate series. See SEC No- Action
Letter, Broker-Dealers Operating Under a Series LLC Structure
(September 1, 2009), available at www.sec.gov/divisions/marketreg/mr-no
action/2009/finra090109.pdf.

11 See 805 IL Comp. Stat. 180/37-40(b)
(“A series with limited liability shall be treated as a separate
entity to the extent set forth in the articles of organization”).
Tennessee ambiguously allows for classifications of interests and
voting rights and permits distributions “as if the series were a
separate LLC.” See TN Code Ann. §§48-249-309(d) and (e).

13 See, e.g., Price, “Tax Aspects of
Limited Liability Companies: Is the LLC a State-of-the-Art Entity?”
174 Journal of Accountancy 48, 52 (September 1992) (“Today, the
LLC’s greatest weakness may be its status in states without LLC
legislation, which may not follow LLC members’ limited liability
status”); Horwood and Hechtman, “The Limited Liability Company: The
New Kid in Town,” 20 J. Corp. Tax’n 334, 346 (1994) (“Limited
liability is not assured, however, in jurisdictions that do not have
an LLC statute. . . . In these states, the use of corporations . . .
may be preferred to ensure limited liability”); Platner, “Limited
Liability Companies Are Increasingly Popular,” 47 Tax’n for Accts.
364, 370 (1991) (“Operating an LLC in a state that has not enacted
LLC legislation poses the risk that the owners of the LLC may be
held personally liable for the obligations of the LLC. . . . Because
LLCs are relatively new, the Federal bankruptcy laws do not specify
how an LLC should be treated”).14 It is noteworthy that a series LLC
might actually provide better protection than a separate-entity
structure insofar as courts pierce veils and require entities to pay
liabilities of related entities, but series LLCs operate under
specific statutory provisions that restrict the charging of
liabilities to assets of a particular series. See Ribstein, “An
Analysis of the Revised Uniform Limited Liability Company Act,” 3
Va. L. & Bus. Rev. 35, 43–44 (2008).

22 See, e.g., IRS Letter Ruling 9847013
(11/20/98) (“Provided that each Series is treated as a separate
trust and that creditors of one Series of the Trust may not reach
the assets of any other Series of the Trust, we conclude that each
Series is a separate entity for federal income tax purposes”).

26 See Bishop, “Through the Looking
Glass: Status Liability and the Single Member and Series LLC
Perspective,” 42 Suffolk U.L. Rev. 459 (2009).

27 As a separate taxable entity, each
series might discover an obligation to file separate federal and
state tax returns.

28 A transfer to a new series could
create additional tax issues, particularly under the partnership
rules, which are not addressed here. See Gerson, “Series LLC Tax
Issues,” 35 The Tax Adviser 416 (July 2004).

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